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GRU transfer to city's general fund slated to rise next year

Published: Sunday, June 23, 2013 at 8:14 p.m.

Last Modified: Sunday, June 23, 2013 at 8:14 p.m.

The amount of money flowing from Gainesville Regional Utilities to the city's general budget has continued to rise in recent years, even as the utility's revenues declined, and that trend is expected to continue for at least one more year.

With budget meetings beginning in July for the 2014 fiscal year, the city's plan is to increase the GRU transfer from $36.7 million to $38.1 million, including almost $4.9 million collected via surcharges on utility customers outside the city limits.

After that, yet to be determined changes likely loom for a money source that easily eclipses property tax revenues as the largest building block of the city's operating budget.

GRU staff has, in the past, identified reducing the transfer as an option to limit utility rate increases associated with the biomass plant. The wood-waste-burning 100-megawatt plant is set to feed power to the grid in a few months.

The city has pursued a series of moves, including the hotly debated decision to build up a fund of nearly $24 million through the fuel charge on customer bills over the last few years, to try to limit the rate increases from the plant to $10.56 per 1,000 kilowatt-hours in the first year.

The Gainesville Area Chamber of Commerce also has an ad hoc committee in the midst of a study of GRU that, along with potentially changing governance to an independent board, will look at various changes in the formula for setting the annual budget transfer.

The issues of governance and the transfer are intertwined.

David Flagg, a former city commissioner and the co-chair of the Chamber study group, noted that GRU customers in the unincorporated county pay toward the transfer but cannot vote in elections for the city commissioners who serve as the utility's board of directors.

While the Chamber is months away from releasing recommendations, Flagg said some level of transfer is “a reality we have to have.”

“Gainesville pretty much has to have a transfer from its utility or taxes are going to have to be raised because so much of the property in Gainesville is exempt,” he said.

About 56 percent of the property in Gainesville is off the tax rolls, the highest amount of any Florida municipality, according to the city's most recent annual audit.

As the Chamber committee looks at options, budget staff from GRU and general government are also in talks to try to bring forward a new formula for setting the transfer first to management and then the commission.

The upcoming fiscal year is the last in a four-year budget cycle in which the transfer amount was set in advance, a move city officials say was intended to provide stability in the wake of the recession.

Prior to that, the amount varied annually based on a formula that estimated how much the city would receive from property taxes, franchise fees and other revenues if a private, investor-owned utility operated in the city limits.

“I am very interested in looking at the formula and figuring out a way to reduce the transfer,” Mayor Ed Braddy said. “It's fixed for another year, and that's not under any threat. But my concern is the ability of the utility to generate revenues to support that transfer.”

The transfer has increased even as utility revenues declined. It went from approximately $34.3 million in 2010 to $36 million in 2012, while total GRU revenues declined from approximately $364 million to approximately $342.5 million during that time, according to information included in a GRU presentation to the Chamber committee.

Commissioner Thomas Hawkins said he expects upward rate pressure from the biomass plant and the fact that the plant will pay property taxes to be presented as reasons to reduce the transfer to the general fund.

But Hawkins said for reasons of financial stability and predictability, he would want to keep to an “objective” formula based primarily on how much money the city would see from a private utility operating in its limits.

“I want to keep with the same philosophy we had,” he said.

With the majority of the property in the city off the tax rolls, the GRU transfer exceeds property tax revenues by more than 60 percent as a piece of the budget.

It has historically been a lifeblood for the budget.

Back in 1997, the transfer made up $20.1 million, or approximately 36 percent, of a $55.7 million general fund budget. This year, it is a little less than one-third of a $108.2 million budget.

The reliance on that funding source had Gainesville ahead of the five other large public utilities in the state — Jacksonville, Orlando, Tallahassee, Lakeland and Ocala — for both the percentage of the utility budget transferred to the general fund and the percentage of the general fund that the utility transfer makes up, according to an analysis from August 2012. The city did have the second-lowest property tax rate of those cities, behind Tallahassee.

Any future reduction of the general fund likely will have one of two outcomes — spending cuts or property tax rate increases. Scenarios that city budget staff prepared for the Chamber committee showed that a reduction of 10 percent, or approximately $3.67 million, in the general fund this year without spending cuts would have led to a tax increase of $73.95 for every $1,000 of taxable property value.

<p>The amount of money flowing from Gainesville Regional Utilities to the city's general budget has continued to rise in recent years, even as the utility's revenues declined, and that trend is expected to continue for at least one more year.</p><p>With budget meetings beginning in July for the 2014 fiscal year, the city's plan is to increase the GRU transfer from $36.7 million to $38.1 million, including almost $4.9 million collected via surcharges on utility customers outside the city limits.</p><p>After that, yet to be determined changes likely loom for a money source that easily eclipses property tax revenues as the largest building block of the city's operating budget.</p><p>GRU staff has, in the past, identified reducing the transfer as an option to limit utility rate increases associated with the biomass plant. The wood-waste-burning 100-megawatt plant is set to feed power to the grid in a few months.</p><p>The city has pursued a series of moves, including the hotly debated decision to build up a fund of nearly $24 million through the fuel charge on customer bills over the last few years, to try to limit the rate increases from the plant to $10.56 per 1,000 kilowatt-hours in the first year.</p><p>The Gainesville Area Chamber of Commerce also has an ad hoc committee in the midst of a study of GRU that, along with potentially changing governance to an independent board, will look at various changes in the formula for setting the annual budget transfer.</p><p>The issues of governance and the transfer are intertwined.</p><p>David Flagg, a former city commissioner and the co-chair of the Chamber study group, noted that GRU customers in the unincorporated county pay toward the transfer but cannot vote in elections for the city commissioners who serve as the utility's board of directors.</p><p>While the Chamber is months away from releasing recommendations, Flagg said some level of transfer is “a reality we have to have.”</p><p>“Gainesville pretty much has to have a transfer from its utility or taxes are going to have to be raised because so much of the property in Gainesville is exempt,” he said.</p><p>About 56 percent of the property in Gainesville is off the tax rolls, the highest amount of any Florida municipality, according to the city's most recent annual audit.</p><p>As the Chamber committee looks at options, budget staff from GRU and general government are also in talks to try to bring forward a new formula for setting the transfer first to management and then the commission.</p><p>The upcoming fiscal year is the last in a four-year budget cycle in which the transfer amount was set in advance, a move city officials say was intended to provide stability in the wake of the recession.</p><p>Prior to that, the amount varied annually based on a formula that estimated how much the city would receive from property taxes, franchise fees and other revenues if a private, investor-owned utility operated in the city limits.</p><p>“I am very interested in looking at the formula and figuring out a way to reduce the transfer,” Mayor Ed Braddy said. “It's fixed for another year, and that's not under any threat. But my concern is the ability of the utility to generate revenues to support that transfer.”</p><p>The transfer has increased even as utility revenues declined. It went from approximately $34.3 million in 2010 to $36 million in 2012, while total GRU revenues declined from approximately $364 million to approximately $342.5 million during that time, according to information included in a GRU presentation to the Chamber committee.</p><p>Commissioner Thomas Hawkins said he expects upward rate pressure from the biomass plant and the fact that the plant will pay property taxes to be presented as reasons to reduce the transfer to the general fund.</p><p>But Hawkins said for reasons of financial stability and predictability, he would want to keep to an “objective” formula based primarily on how much money the city would see from a private utility operating in its limits.</p><p>“I want to keep with the same philosophy we had,” he said.</p><p>With the majority of the property in the city off the tax rolls, the GRU transfer exceeds property tax revenues by more than 60 percent as a piece of the budget.</p><p>It has historically been a lifeblood for the budget.</p><p>Back in 1997, the transfer made up $20.1 million, or approximately 36 percent, of a $55.7 million general fund budget. This year, it is a little less than one-third of a $108.2 million budget.</p><p>The reliance on that funding source had Gainesville ahead of the five other large public utilities in the state — Jacksonville, Orlando, Tallahassee, Lakeland and Ocala — for both the percentage of the utility budget transferred to the general fund and the percentage of the general fund that the utility transfer makes up, according to an analysis from August 2012. The city did have the second-lowest property tax rate of those cities, behind Tallahassee.</p><p>Any future reduction of the general fund likely will have one of two outcomes — spending cuts or property tax rate increases. Scenarios that city budget staff prepared for the Chamber committee showed that a reduction of 10 percent, or approximately $3.67 million, in the general fund this year without spending cuts would have led to a tax increase of $73.95 for every $1,000 of taxable property value.</p>